EBA's Danske Bank probe secrecy may be maladministration, EU ombudsman says

16 Jul 2021 1:59 pm by Jack Schickler

Money laundering

The EU banking watchdog's handling of probes into money laundering at Danske Bank and Pilatus Bank may have been bungled, according to a preliminary assessment by the bloc’s ombudsman, MLex has learned.

Emily O’Reilly's finding comes after the European Banking Authority refused to disclose details of key votes in which supervisors may have been asked to help decide their own fate.

The ombudsman responsible for probing wrongdoing at the EU's institutions has previously blasted undue secrecy in the process for making financial laws.

Her preliminary finding relates to a complaint raised by MLex over a failure to reveal how EBA board members voted when they decided in 2018 that the Maltese financial regulator had broken EU law for failing to prevent money laundering at Pilatus Bank but in 2019 failed to reach similar conclusions in relation to Danske Bank.

“My preliminary assessment is that [the] EBA’s refusal to grant public access to the two voting records in question constituted maladministration,” O’Reilly said in a letter to EBA chairman José Manuel Campa sent today and seen by MLex.

EU auditors have already said that they had found evidence of improper influence over supposedly independent legal investigations.

Concerns over EBA conflicts of interest are set to have a significant impact on the bloc’s money-laundering policy.

Next Tuesday, the European Commission is expected to propose a new agency to supervise the money-laundering controls of major banks and payment firms, despite the obvious advantages, in terms of cost and red tape, in simply handing extra powers to existing watchdogs (see portfolio here).

2018 meeting

A leaked copy of a 2019 EBA report, also seen by MLex, accused the Danish and Estonian supervisors of multiple legal breaches for failing to investigate up to 200 billion euros ($240 billion) of suspicious payments at Danske’s Tallinn branch.

The publicly released minutes of an April 2019 meeting of the EBA’s Board of Supervisors — which comprises the heads of national banking regulators — showed that the Danish and Estonian members intervened during a debate on the report, known as a breach of EU law, or BUL, recommendation.

The board then voted against the findings, though it's unclear whether or not the two implicated supervisors took part.

The ombudsman is still probing “whether the national supervisory authorities concerned participated in the votes on the two BUL recommendations in question,” and details may be published at a later stage, O'Reilly's letter said.

The EBA has previously argued that releasing information on legal probes would seriously harm the decision-making process, opening the door to lobbying and undermining board members’ independence from national interests.

But O'Reilly dismissed those arguments as “vague,” failing to demonstrate either the existence of external pressure or how that would undermine regulators’ duties.

She said information about BUL probes should be treated like decisions on legislation, which she previously ruled should be made public after an earlier complaint made against the European Insurance and Occupational Pensions Authority.

A ruling from the EU Court of Justice in March concerning the Bulgarian central bank showed national courts are obliged to consider EBA recommendations on breaches of EU law — showing they can have legal effects and establish liability, she said.

Evidence unearthed by the European Court of Auditors last month showed that members of the EBA’s investigation panel had been lobbied, potentially by other board members, showing that independence was already being undermined, O’Reilly said.

The EBA has been given until Oct. 30 to reply, after which O’Reilly will take a final decision on the matter.

“We continue to cooperate with the Ombudsman’s inquiry,” an EBA spokesperson told MLex in a written statement. “We will be considering her preliminary assessment and responding to it in due course.”

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